To some extent, it is connected to Deputy Kirk's first point. We must look back and consider how energy prices have changed. For a long time, the practice of energy utilities in Ireland and other countries has been to buy fuel in advance and offer the consumer fixed prices for periods of up to a year. It can be different for large energy users, who can decide to have much more flexibility, but I will come back to them. The practice of buying in advance results in the price to the consumer not following the monthly ups and downs of the oil, gas or coal price. That is different from the way in which the petrol market works, because the effects of changes in the petrol price do come through. People complain that they do not come through quickly enough. We are not responsible for that, but there are certainly ups and downs. Even since Christmas, the price I pay at the pumps has increased by about 15 per cent from the low 90s to 106 or 107 cent. When energy prices are fixed for a period, price increases are usually passed on but price reductions are usually delayed. Everyone would like to have perfect foresight and be able to spot the downs so that they buy in advance only when prices are increasing, but that is not a likely scenario.
What happened in Ireland in the past two years? Prices for both electricity and gas were reduced in late 2007, the electricity price by 5.4% and the gas price by 11%. At that time, fuel prices on the world markets were already increasing and the petrol price was beginning to increase. Those prices continued to increase until August 2008 or thereabouts, but gas and electricity prices did not increase at all. They remained at the level to which they had been brought down in late 2007.
In mid-2008, when we would usually have considered changing prices in the following October, it became clear that, given the very high prices that fuels had reached, there was a danger of a significant price increase of the order of 40% in the autumn. Together with the ESB and Bord Gáis, we decided to have an earlier increase than normal but to cap it at a level well below what was likely to happen in October. On 1 August, we had an increase of 17.5% in electricity prices.
With our encouragement, and following discussions, the ESB agreed to subsidise prices by €300 million for the coming year in order to keep prices down. That subsidy will apply up to the end of September. We had a 17.5% increase in electricity, 20% in gas and we agreed that we would review the prices again in November 2008 to see what was needed in January. Luckily when the review took place, the commodity price was coming down on world markets and to the extent that ESB and Bord Gáis had not already bought all the fuel they needed for the current year, they were benefiting from that and we found that there was no need for any further increase. The only increase that took place in 2008 was 17.5% on electricity and 20% on gas, at a time when in the UK the average price of gas went up by 48% and the average price of electricity rose by 28%. Price increases in Ireland were well below those of the UK.
In December 2008 we stated there was no need for further price increases but that we would review the prices again if there were significant changes in the underlying costs for ESB and Bord Gáis. We carried out a further review in February and issued results in March. At the time we had told the Minister for Communications, Energy and Natural Resources, Deputy Eamon Ryan, that based on the way world market prices were going there was a likelihood that price reductions were coming from 1 October, the beginning of the next energy year. He asked us to look at whether it was possible to bring those price reductions forward and we focused on that in February and March.
We found there was no scope to do so on the electricity side based open costs for bringing the price of electricity down and that the price charged was what was needed to cover the ESB's costs up to the end of September. However, we decided that we would bring forward the reduction that could take place in October in a way that would not damage the market. It was effectively ESB, through the networks, bearing the cost of the 10% reduction from 1 November until the end of September and then recovering the lost revenue next year. What this in fact was doing was allowing us to have a 10% reduction now instead of a slightly larger reduction from 1 October next. That reduction of 10% will take effect on 1 May 2009.
On the basis of the way gas and coal prices are going, from 1 October, which will be our next review date, prices are unlikely to change. That is on the assumption that there will be no further subsidy from the ESB. Members will recall that the €300 million subsidy is keeping prices down by approximately 10% for everybody. If the ESB was in a position to subsidise prices for everybody again next year, there could be price reductions but, the recent announcements of its financial results shows that it is not in as good a position now as it was, even without mentioning its pension deficit. There will be further discussions on that before next October.
We found there was scope for a 12% price reduction in the gas price because Bord Gáis had earned more money than it had been expecting, largely because of the cold winter and it had been able to buy the additional gas over and above what it had contracted for at a lower price. This revenue would normally have been passed on to the consumer from 1 October next, the next normal review period. However, we got agreement that it should be brought into effect now in order to give an immediate reduction in gas prices from 1 May. We will review the gas price again on 1 October and we would expect that there will be scope for a further price reduction of up to 10% or so.
As I stated, prices came down at the end of 2007, went up in mid 2008 and are coming down on 1 May. From 1 May 2009, prices will be back at the level they were at the beginning of 2007.
I mentioned earlier that major users tend to negotiate more flexibility in their prices. We understand that a large number have benefited from the full reduction in gas and coal prices on world markets but if they were on flexible tariffs, the price rise was at a much higher level following the prices on the world markets — much higher than the 17.5% and 20% that those on fixed tariffs went up by. It is a case of swings and roundabouts.
We know that everybody would like to delay price increases as long as possible and have price reductions as quickly as possible. We would like to do that too, but the companies cannot have perfect foresight of where world market prices are going, particularly with the volatility in the market. It may be more feasible to have prices changing much more regularly in the future but that has not been the pattern up to now. This year there will be three reviews of prices with three potential price changes. The commission has never done this before.
Deputy Kirk implied that the Commission for Energy Regulation was keeping prices at high levels for various reasons. We totally reject this comment every time it is made and state that the commission has never kept prices artificially high. The commission keeps prices at a level that will cover the costs of the ESB and Bord Gáis and will give them a normal return on investments. The commission does not put prices up artificially. If we did, it may have generated competition in the market quicker. We are careful not to do that but at the same time, we do not allow the ESB and Bord Gáis to sell below cost because that will drive out any possibility of competition and could only be continued for a short period anyway. It is always a temptation for an incumbent to drop its prices whenever a new company, such as Bord Gáis or Airtricity, comes on the scene to prevent the new entrant from being able to compete. We ensure companies charge the right price while at the same time ensuring they do not charge too high a price.
On the issue of alternative sources of energy, the commission is doing all it can to facilitate renewable investment. I mentioned the 3,900 MW of wind energy that are being offered space on the system. A major problem in developing renewables is getting the networks built to facilitate them. EirGrid and ESB Networks are moving as quickly as possible on that front. For small-scale units, microgeneration in particular, we have been trying for the past 12 months at least to get ESB-PES, the supply side, to put up a price to buy the output from the microgenerators. We have said we will allow new meters to be installed in any microgenerator free of charge for the first particular number of units. ESB-PES brought forward a tariff in recent times, on top of which the Minister has announced a subsidy to encourage the installation of microgenerators and the sale of their output on the market.
One of the drawbacks, apart from needing new meters, is that people expect they can get as much for their output into the system as they pay for the electricity they import. However, the cost of what they import covers more than the energy costs. They are paying the cost of the networks, the cost of supply, etc, and they are usually exporting at a time when the value of electricity is reasonably low. Very few seem to know that the price of electricity varies every half an hour. It is very high at peak times between 5 p.m. and 7 p.m. and very low at 3 a.m. because not much electricity is being used. Many of the microgenerators use it from 5 p.m. until 7 p.m. and want to sell it on the market when there is not much demand for it. We must be reasonable about the price people can expect to receive for what they are putting on the market. The Minister has announced a subsidy on top of what the ESB is willing to pay on a commercial basis and we expect significant developments as part of the pilot study of smart meters under way. We have certainly said all the microgenerators will have smart meters, even if they are not involved in the pilot study.
Deputy Kirk asked whether there was harmony between the ESB and EirGrid. We are not aware of any problems.
